Blog - Strategy

Why Decisions Fail? #1: When faced with a crisis we accept the first answer presented.

Posted by Scott Newton on Jan 1, 2014 11:12:00 AM
“If we were to decide now, would we still enter the businesses we are in today? And if not, what are we going to do about it?” (Drucker, 1992 and 1999)
The time periods which validate the strongest company leadership teams are not the “good times” when most organizations are growing and the situation is relatively simply and rather are the times of crisis when losses begin to compound, lenders and equity investors are citing covenants, and customers and employees are abandoning the business.

 

Unfortunately during a crisis many companies tend to jump to the first available alternative that seems as if it will work and head in that direction.  It seems more than unfortunate when considering that of the original Standard and Poor’s (S&P) 500 list created in 1957, just 74, only 15 percent, are on that list today according to research from Professor Gary Biddle of the University of Hong Kong. Of those 74, only 12 have outperformed the S&P index average.

When you want to improve your decision making and not simply pass the problem into the future- the first suggestion is to return to the Drucker question of 1992: “If we were to decide now, would we still enter the businesses we are in today? And if not, what are we going to do about it?”

In returning to this thought provoking question it is recommended in making a crisis level decision to pursue:

1) What is the true purpose of the decision we are making?  Is it to exit the crisis today?  Is it to ensure the long-term stability of the business tomorrow?

2) What are the criteria we will use to evaluate the alternatives?  How will each criteria be measured?

3) What alternatives are available to us?  On this step looking not only to the simplest alternatives (i.e. cut costs to improve bottom line) and rather to alternatives that will leave the business in a better position for tomorrow (i.e. exit 2 business units as in the medium term this cannot become profitable).

In our upcoming blogs we will also visit both risk and probability areas to determine which ways we can make better decisions for both the short and long term.